Harbor City Health Spa Harvard Case Solution & Analysis

Harbor City Health Spa Case Study Solution

Projected Revenues and Costs

Previously, the firm’s accountant used to project costs on the basis of inflation rate ranging from 5% to 10%, however, as the costs are supposed to be activity based, so the growth in costs must also be based on the activity level or the expected growth in the number of visitors that is 10%. On the basis of these growth percentages, three different projected income statements have been formulated on the basis of their different prices i.e. previous average price per visit, suggested average price per visit and suggested price per activity department. The three projected income statements for Harbor City are given in Appendix 5.

It could be seen that from if the company would charge the previous average price i.e. $10.7, it would have a deficit of 3%. However, if the company would charge the suggested prices including the average price of $16 and the prices per activity department which are based upon costs, it will have a surplus of 32% and 0.47% respectively.

Recommendations

From the above analysis, the company is recommended to pursue the suggested prices per activity department on the basis of its required profit margin as given in the Appendix 4 based on a 5% profit margin. Although, the profit margin with the average price per activity i.e. $16 is much higher than the price per activity department i.e. 32% as compared to 0.47%, but the suggested to pursue individual prices to provide reasonable prices to its customers ibn order to avoid competitive threats in the industry. By implementing an individual pricing strategy, the company could mitigate its losses and became self-sufficient. However, the company must put cost cutting measures along with the individual pricing strategy to provide competitive pricing in the market.

Appendices

Appendix-1: Average Charge per Visit

Appendix-2: Costs Allocations

Table-2.1: Allocated Costs for each Department

Table-2.2: Allocated Cost per Visit for Each Activity Department

Appendix-3: Factors Causing Deficit

Chart-3.1

Chart-3.2

Chart-3.3

Appendix-4: Pricing Strategy

Appendix-5: Projected Income Statement

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